## Top Five Policy Priorities to Brighten America’s Economic Future

_IMF Blog, November 5, 2014_

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## Bibliographic details
- Authors: Deniz Igan
- Published: November 5, 2014

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### Productivity outlook and growth diagnosis
- Recent U.S. recovery has been "fragile and weaker than anything we have seen in the post-WWII period."
- IMF projects future potential growth at only 2 percent in the coming years—a decline from the average potential growth rate of over 3 percent observed over the past one or two decades.
- Two main sources of the weaker outlook:
  - Slower expansion of the labor force.
    - Over the past three decades, the labor force expanded at an annual rate of 1¼ percent.
    - The growth rate now is projected to level off at below ½ percent.
    - Aging accounts for a large part of the drop: roughly 10,000 baby-boomers will turn 65 today, and about 10,000 more will cross that threshold every day for the next 19 years.
  - Slowdown in productivity.
    - Labor productivity growth soared in the late 1990s (information technology revolution) but has "irrefutably slowed."
    - 2013 low for labor productivity was ½ percent.
    - Average growth rate between 1998 and 2007 was 2¾ percent.
    - Uncertainty remains whether the slowdown is temporary or persistent; even a rebound from the 2013 low that stays below the 1998–2007 average implies a markedly weaker potential growth outlook.

### Roadmap for a "new momentum" — Top Five policy priorities
- Core objective: encourage productive investment and innovation, reverse the downswing in productivity growth, and boost the labor supply.
- The "Top Five" policy agenda:
  - Infrastructure investment to reverse the downward trend in both the quantity and quality of the public capital stock in the United States.
  - Tax reform to simplify the code, broaden the base, and lower marginal rates—particularly for the corporate income tax.
  - Encourage innovation and improve education outcomes by:
    - reinstating the research and development tax credit,
    - promoting and funding early childhood education,
    - providing greater support to science, technology, engineering, and math programs.
  - A comprehensive, skills-based immigration reform to ensure that the U.S. maintains a work force that meets employers’ needs for highly-skilled, educated, and innovative workers.
  - Active labor market policies that:
    - improve training programs,
    - provide more effective job search assistance,
    - improve family benefits (including childcare assistance),
    - expand the Earned Income Tax Credit to younger workers to encourage work,
    - modify the disability insurance program so those working part time do not lose benefits,
    - provide incentives to those that hire the long-term unemployed.

### Fiscal implications and implementation guidance
- Many recommended policies come with a price tag; immigration reform is an exception and would likely reduce fiscal deficits modestly.
- Estimated overall cost: around ⅓ percent of GDP per year for the next 2–3 years.
- Part of the fiscal cost would be offset by faster growth resulting from these policies.
- Ideal implementation: pursue these measures in conjunction with a broader and much-needed medium-term fiscal consolidation plan.

### Political economy and prospects for consensus
- A public debate is necessary to identify programs that generate the maximum "bang for the buck."
- Challenge: forge political agreement on a set of ideas acceptable to both sides of the aisle.
- Recent progress (for example, the Bipartisan Budget Act) suggests bipartisan agreement is possible, especially where proposals intersect (business tax reform, infrastructure, work training programs, immigration reform).
- Long-term U.S. growth will depend critically on acting on common ground.

*IMF Blog post by Deniz Igan, November 5, 2014.*

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## Content in this bundle

- **Country Report**
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## References

- [slower expansion of the labor force](http://blogs.imf.org/2014/08/07/us-labor-force-where-have-all-the-workers-gone/)
- [slowdown in productivity](http://blogs.imf.org/2014/09/25/a-tale-of-two-states-bringing-back-u-s-productivity-growth/)

_Source: https://www.imf.org/en/blogs/articles/2014/11/05/top-five-policy-priorities-to-brighten-americas-economic-future_